On 24 February 2016, the German government approved the draft law on the reform of investment taxation ("government draft"), thereby initiating the formal legislative process.
The new Investment Tax Act (InvStG) is due to come into force on 1 January 2018 come into force. The changed taxation system also applies to fund units that have already been acquired, as the reform No transitional regulation with comprehensive grandfathering provides for. The taxation of investment funds and their investors will change. change significantly. Particularly in the area of fund investments for natural persons as investors (mutual funds), an important tax system principle is being completely abandoned, namely the principle that the tax consequences of fund investments should correspond to those of direct investments. This taxation principle, which has been undisputed in Germany and internationally for decades, is now to be replaced by a non-transparent taxation system, which is characterised by the fact that at the level of the investment fund there will be an independent definitive charge to corporation tax on German capital and property income. At investor level, an attempt will then be made to achieve a certain degree of compensation through flat-rate partial exemptions, although this can only succeed in a few individual cases. (see also our TAXGATE News on the Discussion draft from 28/07/2015, to the Draft bill from 18 December 2015 (investment tax changes), and TAXGATE News from 28.01.2016 (on Section 8b KStG; cum/cum transactions).
The government draft does not introduce any fundamental changes compared to the draft bill. The fundamental separation into (non-transparent for tax purposes) retail investment funds and special investment funds, which are subject to completely different taxation systems, is retained. It also remains the case that in the area of public investment funds, an advance lump sum is taxed at investor level in addition to distributions in order to counteract deferral advantages. Finally, attempts are being made to mitigate double taxation by means of lump-sum partial exemptions at investor level.
The changes compared to the draft bill are largely of an editorial nature. From a substantive point of view, it is particularly positive to emphasise that the group of (tax-exempt) investors, which means that investment funds themselves are also tax-exemptwas expanded (in particular to include pension schemes).
Furthermore, the legislator has fortunately refrained from introducing a general, indefinite abuse provision regarding the crediting of capital gains tax ("no crediting in the event of tax avoidance"). However, the special provision to combat so-called cum/cum transactions is still included in the government draft (cf. TAXGATE News from 28.01.2016).
Another positive aspect is that the VAT-free management of funds will now also be extended to closed-end funds. Fortunately, the Federal Government is thus following recent ECJ case law (cf. TAXGATE News from 14.12.2015 and from 28.01.2016).
There is still a need for action for existing fund investments and investment structures, as a mandatory profit-realising swap into the new taxation regime will be ordered on 31 December 2017.
Your TAXGATE team will be happy to answer any questions you may have about investment taxation.
